Options Trading News

A large trader is looking for the iPath S&P 500 VIX Short-Term Futures Note to continue its descent.

The VXX, which is based on CBOE Volatility Index futures, has been both very popular and a very poor performer over the long term. optionMONSTER systems show that the biggest options trade so far in the fund is a May put spread.

A trader bought 5,000 May 19 puts for the ask price of $0.87 and sold the same number of the May 17 puts for their bid price of $0.32. The volume was multiples of the previous open interest at each strike, clearly showing that this is new activity.

This vertical spread cost $0.55 to open, which is the most that can be lost if the VXX remains above $19 through mid-May. The position is betting that the exchange-traded fund will continue its long-term decline, which is caused largely by the VIX futures staying above the spot reading of the volatility index. (See our Education section)

The VXX is up 1.42 percent to $23.60 this morning but well off its high of $26.81 on Monday when the stock market was plunging, its highest level since Jan. 9. The fund was an all-time low of $20.97 last week.

So far, my articles have taken you through a logical progression of option theory and fundamental concepts of options. As of yet, I have not mentioned a single strategy and for a good reason! The actual application of a strategy should come AFTER you learn about the option product itself.

optionMONSTER® provides stock market insight, advanced options education, and actionable trade ideas to meet the needs of do-it-yourself investors. After spending decades in the trading pits of Chicago, Jon 'DRJ' and Pete Najarian founded the company in 2005 to help people better manage their own investment portfolios.

OptionsHouse is separate from but affiliated with optionMONSTER®. Both are subsidiaries of Aperture Group, LLC.

All investments involve risk, and the past performance of a security, industry, sector, market, financial product, trading strategy, or individual's trading does not guarantee future results or returns. Investors are fully responsible for any investment decisions they make. Such decisions should be based solely on an evaluation of their financial circumstances, investment objectives, risk tolerance, and liquidity needs.

optionMONSTER's reference to specific securities should not be construed as a recommendation to buy or sell that security. Specific securities are mentioned for informational purposes only.